Question
ABSTRACT. The results of an exploratory study examining the role of trust in stakeholder satisfaction are reported. Customers, stockholders, and employees of financial institutions were surveyed to identify management behaviors that lead to stakeholder satis- faction. The factors critical to satisfaction across stakeholder groups are the timeliness of communica- tion, the honesty and completeness of the informa- tion and the empathy and equity of treatment by management.
KEYWORDS: justice, satisfaction, stakeholder management
The scholarly use of stakeholder management has received increased attention of late, including a lively debate in a recent issue of the Academy of Management Review regarding the viability of stakeholder theory ( Jones and Wicks, 1999; Trevino and Weaver, 1999; Gioia, 1999; Freeman, 1999; Donaldson, 1999). Much of the debate centered on whether stakeholder “theory” was a theory at all, and whether it could produce empirically verifiable hypotheses using measur- able constructs. While finding merit in all sides of the debate, we will use the stakeholder con- ceptualization as a framework for examining satisfaction theory. A stakeholder framework provides a parsimonious and identifiable catego- rization of markets in which a firm operates. A firm operates in product/service markets with its customer stakeholders, in labor markets with its employee stakeholders, and in capital markets with its ownership stakeholders, just to mention a few of the possible market/group combinations. The stakeholder framework can be overlaid on theories developed in one market setting to determine if the concepts apply in different market settings. This is the intent of our paper.
THE
* Rules of Stakeholder Satisfaction (* Timeliness, Honesty, Empathy)1
Journal of Business Ethics
32: 219–230, 2001. © 2001 Kluwer Academic Publishers. Printed in the Netherlands.
Kelly C. Strong Richard C. Ringer
Steven A. Taylor
Kelly Strong is on the management faculty at Michigan Technological University in Houghton, Michigan, where he teaches courses in management, leadership, business policy and international business. His primary research interests involve stakeholder approaches to strategic management, cross-cultural comparative management practices and the impact of social changes on the strategic planning process. He has published in the International Journal of Organizational Analysis, Organization Development Journal, Business and Society, and the Journal of Business Ethics, among others.
Rick Ringer is Associate Professor of Management in the College of Business at Illinois State University where he teaches graduate and undergraduate courses in general management and organizational change. Before entering academia, he worked at Los Alamos National Laboratory in Los Alamos, New Mexico. His primary research interests include organizational change, leader- ship, and management history. He has published in the Leadership and Organization Development Journal, the Journal of Business and Psychology, and the Organization Development Journal, among others.
Steve Taylor is an Associate Professor of Marketing in the College of Business at Illinois State University, where he teaches marketing management and founda- tions of inquiry courses. His primary research areas include services marketing, relationship marketing, and e-business with an emphasis on the conceptualization and operationalization of the service quality, satisfaction, and value constructs. His work has appeared in the Journal of Marketing, the Journal of Retailing, the International Journal of Service Industry Management, the Journal of Marketing Theory and Practice, and the .Journal of Health Care Marketing, among others.
We have used concepts from satisfaction theory in marketing, traditionally used to measure customer satisfaction, and applied them to other stakeholders to determine if the theorized rela- tionships hold across different market settings.
Research model
The current dominant view of satisfaction in the marketing literature is frequently referred to as the gap model. To determine satisfaction levels using a gap analysis, a firm must determine customer expectations, and then assess its performance against those expectations. A gap between expectations and performance will result in dissatisfaction. Although this gap model of satisfaction was developed primarily within marketing to explain customer satisfaction, it is likely that the relationships apply to other stakeholder groups (Taylor, 1993).
Constructs defined in the gap model of satis- faction as described in the marketing literature (Parasuraman et al., 1985; Oliver, 1993; Spreng et al., 1996) were used to establish a research model for our investigation of stakeholder satis- faction. In this model, satisfaction is thought to be a two-phase process of:
1) communicating accurate information regarding realistic expectations of the exchange or relationship, as well as accurate depictions of actual performance, and
2) providing actual performance, which equals or exceeds expected performance.
The first phase involves accuracy and veracity of information. Information received by indi- viduals will be used to make choices from an array of possible actions. The choice of action will be based on a set of expectations derived from available information, some of which will be supplied by the firm itself (Gardial et al., 1994). The information, and the judgements made from it, are antecedents to satisfaction outcomes (Spreng et al., 1996). Therefore, the first stage in an overall satisfaction judgement is a determination of satisfaction with the information (Westbrook et al., 1978).
The second stage involves judgements
regarding the actual performance, and compar- ison to the expectations created by pre-exchange information. This judgement is referred to as attribute satisfaction (Oliver, 1993). Attribute satisfaction and information satisfaction combine to influence overall satisfaction.
In this two-stage satisfaction model, three possible dis-satisfying experiences may be realized:
1) expectations are not clearly explained and understood (pre-exchange information is absent or misleading);
2) actual performance is inappropriately assessed or disagreed upon (perceptual variances in degree of compliance with pre-exchange expectations and equity norms);
3) accurately assessed performance fails to meet clearly understood expectations (failure to perform).
The first dis-satisfying outcome involves issues of honesty and integrity. The second outcome involves timeliness and empathy issues. The third outcome involves actual performance and might be called the “honest mistake”. Two of the three dis-satisfying experiences involve managerial communication and assessment, while only the third relates to performance. Much of the scholarly work in stakeholder management has focused only on the performance aspect of stakeholder exchanges. Wood and Jones (1995) identified expectations, experiences, evaluation, and action as the four dimensions of stakeholder- organizational relationship, concepts very similar to those described in the gap model of satisfac- tion. Whereas Wood and Jones evaluated corpo- rate social performance (experiences) using a stakeholder framework, the satisfaction model used in our study allows for examination of the expectations and evaluation stages, both of which involve individual judgements. We believe these stages are critical in developing satisfied stake- holders over time, and may be more important than actual performance in cultivating strong stakeholder relationships.
To summarize, individuals use pre-exchange information to establish expectations and make choices from an array of possible actions. They
220 Kelly C. Strong et al.
will develop a post-exchange perception of performance, which will be compared to the pre- exchange expectations. If substantial gaps exist between the expected outcomes and the actual outcomes, dissatisfaction will result. The dis- satisfaction may arise from information failures or attribute (performance) failures. The satisfac- tion model is presented graphically below as Figure 1.
The satisfaction model depicted in Figure 1 has been derived from marketing literature. The intent of our study was to determine whether the constructs were valid in other domains as well. We used stakeholders as an organizing framework because of the rich history of research in
stakeholder management, which is briefly reviewed in the next section.
Stakeholder literature review
We wanted to examine the nature of satisfaction among stakeholders. Since the original stake- holder work of Freeman (1984), debate has been ongoing whether or not management’s ability to satisfy one group of stakeholders comes at the expense of their ability to satisfy another. For instance, De Castro et al. (1996) found that wealth creation strategies in the privatization of state-owned enterprises resulted in losses for the
THE Rules of Stakeholder Satisfaction 221
Figure 1. Stakeholder satisfaction model.
employee stakeholders and gains to the owner- ship group, at least in the short term. Laban and Wolf (1993) argue that outside investors are less likely to provide capital to firms that have powerful employee stakeholders. McDonald (1993) states that when employee groups become powerful, labor peace is valued above all else, leading to declines in customer service and a dis- regard for profitability. The studies described above represent the view that improved man- agerial performance in one stakeholder group comes at the expense of performance for another group.
In an extensive review, Wood and Jones (1995) use a stakeholder framework to examine corpo- rate social performance. They find, among other things, that managers respond to social controls exercised through policies, markets, and values, and that the nature of control is related to the expectations of the stakeholders. To put it simply, managers appear to respond differentially to stakeholder concerns with no apparent trade-off in stakeholder performance. These findings are similar to those of Waddock and Graves (1997), who report that treatment of three primary stake- holder groups (employees, customers, and owners) as measured by profitability and the Kinder, Lydenberg, and Domini index is strongly related to the overall evaluation of managerial performance as defined by ranking in the Fortune reputational index. The net effect of such a finding is to move the debate about managerial effectiveness away from assessment strictly on financial performance. Huse and Eide (1996) found that many of the strategies used for stakeholder management are generic across stakeholder groups. Although the events studied by Huse and Eide revealed abusive stakeholder management practices, the authors state that checks on executive power may create more equitable and ethical generic stakeholder man- agement practices. Huse and Eide suggest that identification of such checks on power are a fertile area for future research and therefore do not provide specific examples. However, it can be inferred from their conclusions that they are suggesting the need for stakeholder repre- sentation on boards of directors, close monitoring of interlocking relationships among CEOs and
the power elite within organizations, and strict laws and regulations governing executive conduct.
The studies described in the paragraph above suggest that, within limits, managers are able to meet the performance expectations of three primary2 stakeholder groups simultaneously. Similar strategies can be used for effective man- agement across all primary stakeholder groups, but performance outcomes and assessments must be appropriate to the concerns and expectations germane to each stakeholder group. In the study described below, we hope to add to our under- standing of the dynamics of stakeholder satisfac- tion by asking the question: “Are there common themes in management or organization behaviors that lead to satisfaction across all three primary stakeholder groups of employees, customers, and owners?”
Research design
To look for common themes, we needed to investigate organizations where all three stake- holder groups appeared generally satisfied. Four financial institutions, all from the Upper Midwest with high reputations and a long-standing presence in the community, were approached. One elected not to participate after concerns over the satisfaction of the ownership group became apparent. The remaining three financial institutions agreed to participate by making representatives of their ownership group, their customer group, and their employee group available for interviews. A random sample of customers and employees were asked to partici- pate in the interviews. A very high percentage of the invited employees agreed to participate. The participation rate among customers was relatively low despite several follow-up requests. However, the final sample did represent a cross section of commercial and individual customers using a variety of services at the bank. Contact with the ownership group was coordinated through the executive offices of each bank. Therefore, the sampling process was beyond the control of the research team. However, the researchers explained the need for diversity and representa-
222 Kelly C. Strong et al.
tion among the owners to ensure reliability of responses.
In this study, we used structured field inter- views to investigate issues of stakeholder satis- faction at three financial institutions. The financial institutions are located in the same com- munity, are approximately similar in size and pursue a common mission as community banks involved predominantly in personal and small business banking. All three financial institutions are publicly held. Interviews were conducted with 116 individuals representing three stake- holder groups. Thirty-two customers, forty-nine employees, and thirty-seven shareholders were interviewed over a two-week period.
In the structured interview methodology representatives from each group were asked a series of seven similar questions regarding their expectations and experiences within the partic- ipating organizations. The questions related to expectations, experiences and satisfaction with pre-exchange information; expectations, experiences, and satisfaction with performance (relevant to the stakeholder group, not merely financial performance); and overall satisfaction. Most interviews were conducted in person at the participating organization’s facilities by a single interviewer. Within the ownership group, some telephone interviews were conducted with individuals who could not travel to the bank. Confidentiality was guaranteed to all interviewees.
No material change in ownership, stock price, employment policies, product/service offerings, etc. occurred during the interview period that could have biased the results. Interview responses were coded independently by two judges. The judges agreed on interpretations of responses in over 90% of the cases. A meeting was held to reconcile different interpretations, most of which involved cases where an interviewee’s response indicated they were satisfied “in general” but were dissatisfied about a specific experience. A decision was made that these respondents would be considered neutral (a score of three on a five point Likert response scale) for the purposes of this study. With this mutually agreed interpreta- tion, very high rates (> 95%) of inter-judge agreement were achieved.
Results
The responses are summarized in Table I. For simplicity, categorical responses only are shown in Table I. In several instances, follow up questions were asked, and the transcripts of the interviews were analyzed to gather more detailed information than that depicted in Table I. The interviews confirmed the anecdotal evidence that these three institutions were operating in a manner leading to satisfaction across all groups. 31 of 32 customers reported average or above satisfaction, 49 of 49 employees reported average or above satisfaction, and 35 of 37 stockholders reported average or above satisfaction. Addi- tionally, a large majority of respondents (30/31 customers; 44/49 employees, 33/35 customers) could recall and describe a recent exchange (either performance or information) at their institution relating to their satisfaction judge- ment. There were 165 specific examples described in the interviews. They were catego- rized by the judges as either a positive only exchange, a negative only exchange, or an exchange involving both positive and negative reactions. There were 60 positive exchanges, 71 negative exchanges, and 34 exchanges involving both a negative and positive incident. Therefore, slightly more than half of the exchanges involved negative information or performance (71/131 excluding the “both” category, 88/165 if respon- dents giving both a positive and a negative incident are included).
The high number of negative incidents came as a surprise. Failure to meet expectations regarding information or performance is hypoth- esized to result in dissatisfaction, but it is apparent that the stakeholders included in our study are not dissatisfied. It appears that a negative experience, if dealt with appropriately by management, need not result in a dissatisfied customer, employee, or owner.
Apparently, negative experiences or exchanges are just one part of a complex set of interactions upon which people make satisfaction judgements. The interactions involve expectations, perfor- mance, and perceptions by both the stakeholders and the top management. The key is for management to be responsive to performance
THE Rules of Stakeholder Satisfaction 223
224 Kelly C. Strong et al.
TABLE I Response summary of satisfaction surveys by institution and stakeholder group
(Financial Institutions = B1, B2, B3) (Stakeholder Group: E= Employee, C= Customer, O= Owner)
Question B1 B2 B3
Is the bank meeting E: 1 no, 14 yes, 2 some E: 0 no, 14 yes, 1 some E: 1 no, 11 yes, 5 some your expectations C: 0 no, 10 yes, 2 some C: 1 no, 12 yes, 0 some C: 0 no, 7 yes, 0 some with regard to its O: 3 no, 8 yes, 2 some O: 1 no, 12 yes, 0 some O: 0 no, 11 yes, 0 some performance?
Can you describe an pos. neg. both none pos. neg. both none pos. neg. both none experience which caused a positive or E: 4 7 6 0 E: 4 4 5 2 E: 0 7 6 4 negative reaction by C: 7 2 3 0 C: 10 1 2 0 C: 2 3 1 1 you? O: 2 5 2 4 O: 5 3 4 1 O: 6 2 1 2
Is the information E: 2 no, 14 yes, 1 some E: 0 no, 14 yes, 1 some E: 3 no, 12 yes, 2 some provided by the bank C: 0 no, 12 yes, 0 some C: 1 no, 12 yes, 0 some C: 0 no, 7 yes, 0 some consistent with your O: 0 no, 12 yes, 1 some O: 0 no, 12 yes, 1 some O: 0 no, 11 yes, 0 some expectations?
Have you had a pos. neg. both none pos. neg. both none pos. neg. both none positive or negative reaction to E: 2 7 0 8 E: 1 10 0 4 E: 2 8 1 6 information you C: 1 2 1 8 C: 2 2 1 8 C: 2 2 0 3 have received from O: 4 2 0 7 O: 2 3 1 7 O: 4 1 0 6 the bank?
Overall, how satisfied *5 4 3 2 1 *5 4 3 2 1 *5 4 3 2 1 are you with the performance of the E: 6 7 2 2 0 E: 5 4 4 2 0 E: 3 8 2 3 1 bank as it relates to C: 8 3 1 0 0 C: 9 2 2 0 0 C: 5 1 1 0 0 (your job; the O: 4 4 3 0 2 O: 6 2 3 2 0 O: 8 3 0 0 0 products/services; your stock ownership)?
How satisfied are *5 4 3 2 1 *5 4 3 2 1 *5 4 3 2 1 you with the information you E: 6 5 4 2 0 E: 4 2 7 2 0 E: 3 9 1 2 2 receive? C: 4 2 5 1 0 C: 5 1 1 6 0 C: 2 4 1 0 0
O: 3 4 4 1 1 O: 4 5 2 2 0 O: 6 3 2 0 0
Overall, how satisfied *5 4 3 2 1 *5 4 3 2 1 *5 4 3 2 1 are you with the bank? E: 5 4 8 0 0 E: 5 1 9 0 0 E: 6 6 5 0 0
C: 5 2 5 0 0 C: 6 5 1 1 0 C: 4 0 3 0 0 O: 5 0 6 0 2 O: 4 6 3 0 0 O: 7 3 1 0 0
* 5 = very satisfied; 4 = somewhat satisfied; 3 = average/in the middle; 2 = somewhat dissatisfied; 1 = very dissatisfied.
that does not meet expectations (timeliness); to try to perceive the expectation/performance gap from the viewpoint of the stakeholders (empathy), and, to the extent possible, clearly set forth expectations for performance and assess- ment prior to exchanges (honesty).
In summary, it appears that:
1) the three financial institutions in this study were generally operating in a manner that customers, shareholders, and employees found satisfying;
2) the interview participants had recent expe- riences with the institutions upon which to make a satisfaction judgement;
3) slightly more than half these experiences involved information or performance that was below expectations; and
4) incidents of negative experiences did not translate into overall dissatisfaction if management effectively addressed the situation.
We wanted to examine further why stake- holders at these institutions were satisfied in spite of incidents of failed expectations. We were particularly interested in how managers reacted to negative situations once they were brought to their attention. In spite of well-intentioned, proactive management, organizations are prone to error that can lead to performance, assessment, or communication mistakes resulting in unmet expectations. The banks in our study were no exception, with “negative” or dis-confirming incidents comprising over half of the experiences described in our interviews. Yet, virtually all respondents reported average or above satisfac- tion. The next step was to look for possible com- monalties in management’s role in performance, assessment, and communication, which might explain stakeholder satisfaction.
Interview transcripts were analyzed for common words, language, or phrases across all three stakeholder groups. The pattern of responses describing the stakeholders’ experi- ences appeared to reveal three recurrent man- agement behaviors that lead to satisfaction:
1) empathy and concern for the equitable treatment of individuals
2) honesty and integrity of information 3) time-related factors
Seventy-three responses to follow up questions (not shown in Table I) contained references to empathy and concern for fairness, forty-five responses related to the integrity and availability of information, and twenty-nine responses indicated time-related factors. Several responses contained language referring to a combination of the three categories. Fifteen responses did not relate to any of the three categories above.
In describing negative experiences, several comments relating to communication issues were common among respondents. For instance, several customer service employees noted frus- tration when they were not informed of marketing promotions and communications. Marketing managers had mailed promotional materials to customers outlining new products and services, but had failed to tell the line employees. Obviously, chaos ensued when cus- tomers arrived asking for new products or services, which the line employees knew nothing about. Many employees were frustrated by the situation, feeling that management had failed to treat them with empathy in this situation, and that they had unfairly received customer aggres- sion through no fault of their own. However, because management had worked well with line employees in the past, mutually agreed steps were taken to prevent similar incidents from recurring in the future.
In a similar situation, several employees and customers were dissatisfied that new policy state- ments were not communicated clearly. Directions were issued on new policies involving fees, but were not applied uniformly. This resulted in some customers receiving differential treatment. Similarly, new employee policies were issued, but some managers interpreted the policies differently than others. This resulted in a perceived lack of equity that caused frustration among all three stakeholder groups, as the owners were affected by the resulting negative publicity and customer complaints.
Many respondents from all three groups were dissatisfied that they were not routinely informed of impending changes in a timely manner. Most
THE Rules of Stakeholder Satisfaction 225
of the individuals understood that rapid change was inevitable, and didn’t expect management to “know all the answers.” Nonetheless, they did express frustration that they were not kept informed of the changes in a timely manner so they could manage their own affairs accordingly. This frustration appeared to cut across all three stakeholder groups. The ownership group in particular noted that changes in legislation, oper- ating procedures, and economic conditions were not communicated with expedience. They were, however, generally satisfied because they believed management was doing the best they could to improve the situation.
Honesty and integrity issues were also preva- lent in the responses. For employees, it usually involved recognition for a job well done. For instance, several employees responded that they had handled a customer complaint and were recognized by their managers for having handled the situation with integrity. Also, mistakes in customer statements or stockholder information occurred, but were usually resolved immediately. Most important in the responses was the aspect of consistent communication. Telling different stories to different groups invariably led to problems later on, which had to be corrected or clarified by management.
One of the banks experienced a series of layoffs and a period of corporate downsizing several years prior to our study. Some of the remaining employees reported this as a negative experience, but commented on how honesty, empathy, and compassion from top managers had prevented the situation from resulting in dis- satisfaction among the retained employees. This provides another example of how poor perfor- mance need not lead to continuing dissatisfaction if managed effectively.
The common themes of timeliness, honesty, and empathy are related in many ways, as are the satisfaction levels of each stakeholder group. Recent work has emphasized the strong rela- tionship between stakeholder theory and the organizational justice literature (Husted, 1998). Specifically, the argument is made that the appli- cation of justice theory can provide insights into stakeholder relations. That argument would appear to hold in the case of our research.
Justice theory is composed of two general areas: distributive justice and procedural justice. Distributive justice refers to perceptions regarding the fairness of the actual distribution of outcomes or the ends achieved. Procedural justice, on the other hand, focuses on the fairness of the process used to distribute outcomes or achieve ends (Greenberg, 1990). Both distributive and proce- dural justice would appear to closely relate to the stakeholder model of satisfaction presented in this study. Clearly, perceptions of distributive justice would closely match attribute satisfaction in the model. Perceptions of procedural justice would closely match satisfaction with information in the model. Specifically, perceptions of procedural justice would apply to the first two dissatisfying experiences specified by the model: 1) expecta- tions are not clearly explained or understood, and 2) performance is inappropriately assessed or the assessment is subject to disagreement. Both of these issues suggest concerns over fair procedures and, in fact, are examples of the elements of fair procedures (e.g., accurate information, bias suppression, consistency) (Leventhal et al., 1980).
A key dimension of justice theory can be applied to this study to broaden our under- standing of how stakeholders respond to organi- zational activities. Research has suggested that when an outcome is perceived to be low or negative (i.e., low distributive justice), individ- uals are more sensitive to issues of procedural justice (Brockner and Siegel, 1996; Welbourne, 1998). In fact, perceptions of procedural justice moderate the impact of individual reactions to an outcome. As long as the process to determine or allocate outcomes is considered fair, the actual distribution of rewards or outcomes has less of an effect on individual reactions (Brockner and Siegel, 1996).
As noted in this research, stakeholders often reported satisfaction with an organization in spite of specific negative experiences. The reasons for the maintenance of satisfaction appear to be related to perceptions of procedural justice. For example, respondents reported that, even when outcomes were negative, they realized that “man- agement was doing the best it could” and that “management can’t know all the answers.” In the case of a corporate downsizing, respondents
226 Kelly C. Strong et al.
remembered the honesty, empathy and compas- sion of management during this difficult period. These responses appear to reflect beliefs that management specifically, and the organization in general, was attempting to be fair and just when making decisions and determining outcomes, and that it was truly concerned about the welfare of those impacted by decisions. Further, respondents noted that, when a mistake occurred, steps were taken to correct the mistake and to ensure that it did not occur again. Perceptions that the orga- nization is attempting to be fair and just, that it is concerned about those adversely affected by decisions, and that the opportunity to correct mistakes exists, reflect key rules that are used to determine procedural justice (Leventhal et al., 1980).
Procedural justice explains why respondents in this study continued to report high satisfaction with an organization, even when experiencing negative outcomes. Research indicates that while satisfaction with specific outcomes (i.e., pay, dividends, etc.) is strongly related to perceptions of distributive justice, overall satisfaction with the organization is strongly related to perceptions of procedural justice (Greenberg, 1990). Since perceptions of procedural justice were high, the impact of specific outcomes was lessened and satisfaction with the organization was not adversely affected over the long term.
Communitarian values also integrate timeli- ness, honesty, and empathy. For instance, taking responsibility for errors in statements, employee records, or shareholder documents and correcting those mistakes quickly and without cost or hardship reflects a sense of communitarian values of shared responsibility and a recognition of the rights of other stakeholders. Additionally, extra- institutional behaviors were notable. For example, several people related stories of bank managers sending get well cards to customers, flowers to the funeral of an employee’s family, or of owners calling customers to help with business problems. All of the financial institutions were relatively small, operating in a mid-sized community. These factors may make extra- institutional behaviors easier to initiate than at large, institutionally owned banks in large met- ropolitan areas.
Another interesting finding is that satisfaction of one stakeholder group is influenced by the sat- isfaction of the other groups. This appears intuitively obvious but is frequently overlooked by management. There appears to be a mutual- satisfaction relationship between stakeholders. It was reasonably clear, although not empirically verified, that employees are more satisfied when customers are more satisfied and vice versa. For instance, one employee stated that when cus- tomers are dissatisfied, they direct their frustra- tion at the employees. Therefore, satisfying customers makes it easier to satisfy employees, at least in retail service settings. Even the own- ership group expressed concern about growth opportunities for employees and the need for good benefits. Several owners stated they expected dividend payments or stock growth, but not at the expense of quality of work for employees or customer service. Again, because of the regional nature of these financial institu- tions, these results may not generalize to large, institutionally owned organizations. Although not tested here, it could very well be that when owners, customers, and employees all live in the same community and have contact on a routine basis outside of work, issues of empathy, fairness, honesty and integrity become personalized. It may be harder to “mistreat” someone you are likely to see in a PTA meeting that night or in church on Sunday.
Expanding on the findings presented in the prior paragraphs, several implications for future research and practice of stakeholder management emerge. In particular, the importance of com- munity, or at least high levels of personalized relationships, may play a critical role in effective stakeholder management. Mistakes are bound to happen in corporations. Whether these mistakes lead to dissatisfaction and movement out of the stakeholder group (customers changing banks, employees resigning, or owners selling stock) depends in large part on the cohesion and sense of community present in the organization. This concept is similar to what Ring (1996) calls “resilient trust.” Ring’s conception of trust is built on expectations, similar to the satisfaction models described earlier. Ring claims that achievement of a deeper level of trust requires
THE Rules of Stakeholder Satisfaction 227
solid interpersonal communication and “whole person” skills including openness, integrity, loyalty, and equitable treatment. This “resilient trust” is also more likely to form in communi- ties where kinship and strong social ties are present. Resilient trust, developed over time through a series of relational exchanges, can withstand the occasionally honest mistake. Therefore, one of the keys to developing stake- holder satisfaction is to invest in community and relationship-building activities on a consistent basis. Then, when organizations fail to meet expectations, management will be given a second chance to correct or explain the situation. Of course, managerial competence is essential. Trust is a necessary, but not sufficient, condition for satisfaction. Management must still strive to perform according to expectations.
In addition, when customers, owners, and employees have a strong sense of community, it appears they discern higher levels of responsibility for each other’s welfare and satisfaction. When executives foster a sense of community through honest communication, equitable treatment, and personalized attention, they create a system that perpetuates its own satisfaction. Individuals feel a strong sense of loyalty to their own and other stakeholder groups. Responsibilities to other stakeholder groups were acknowledged in our interviews. In an organization with well-identi- fied community attributes, individuals respond to unmet expectations by thinking – “it must have been a mistake”, rather than – “they don’t care about their employees” (or customers, etc.). There is no “us against them” posturing between stakeholder groups. It appears from our study that resilient trust, strong identification with com- munity, an organizational culture that values justice, and shared responsibilities are the results of actions and beliefs from the executive managers.
The actions and beliefs of top management evident in our study involved timeliness, honesty and empathy. If we could give managers one piece of advice from our study, it would be to always tell the truth, communicate it quickly (before rumors start in the grapevine), tell the same story to all stakeholder groups, and empa- thetically evaluate alternatives and actions from
the viewpoint of each stakeholder group. This is important for both positive and negative com- munications. Good news and bad news must be shared honestly and quickly, and the impact of negative or positive outcomes must be consid- ered across all groups. Although this may appear to be common sense, many upper level managers disregard these simple rules. For example, Northwest Airlines, in recent negotiations with its largest union, argued that pay raises for employees must be small to ensure the continued survival of the airline. However, management awarded itself very handsome bonuses for keeping operating costs so low. These types of contra- dictory statements and actions do not develop the relationships necessary for satisfied stakeholders.
As a result of the exploratory study presented here, an expanded model of satisfaction incor- porating constructs of trust and justice can be developed as shown in Figure 2.
The constructs titled “perceptions of perfor- mance gap” and “perceptions of information gap” are merely simplified representations of the difference between expected and actual perfor- mance and outcomes shown in Figure 1. The relationships shown in Figure 1 have not been changed, merely simplified for the sake of clarity. The expanded model in Figure 2 suggests how the development of trust and the perceptions of justice may influence or moderate the satisfac- tion judgement. It is important to note that the expanded model was not tested in our study. The relationships are suggested from our results, however, and should be the subject of future research.
The study presented here has many obvious limitations. The institutions studied were small banks operating in a mid-sized community. The results may not be generalizable to larger banks, to other types of firms, or even to small banks in large communities. In addition, the interview methodology relied on open-ended question- naires. While this allowed for more in-depth analysis of responses and follow up questions, it did require interpretations by judges and limited the sample size. Lastly, since no banks were included with dissatisfied stakeholder groups, it cannot be determined if the timeliness, honesty, and empathy rules are material in the creation
228 Kelly C. Strong et al.
of satisfied stakeholders. It could be that managers who use these generic strategies have dissatisfied stakeholders because the resilient trust necessary to make them successful has failed to develop. Stated differently, stakeholder satisfaction may (and almost certainly does) have a long-term developmental aspect which was not examined in the cross-sectional design utilized in our study.
The results of our exploratory study of stake- holder satisfaction suggest that managers are able to satisfy several stakeholder groups simultane- ously by communicating in a timely, honest, and empathetic manner. Such behavior clearly illus- trates critical components of procedural fairness and justice (Leventhal et al., 1980) and helps explain how stakeholder satisfaction within an organization can be maintained. When commu- nication of information is managed effectively, honest performance mistakes need not lead to dissatisfaction among stakeholders.
Notes
1 A previous version of this paper was presented in March, 1999 at the 10th annual conference of the International Association for Business and Society in Paris, France, and appears in the conference Proceedings. 2 “Primary” stakeholders are those whose active
involvement is critical to the organization. For most publicly owned corporations, the primary stakeholder groups will always include employees, customers, and owners, although individual companies will certainly have additional primary stakeholders. For simplicity and clarity, we use the word “primary” to mean employees, customers, and owners.
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Kelly C. Strong School of Business and Economics, Michigan Technological University,
1400 Townsend Drive, Houghton, MI 49931-1295,
U.S.A. E-mail: kstrong@mtu.edu
Richard C. Ringer Department of Management and Quantitative
Methods, Campus Box 5580,
Illinois State University, Normal, IL 61790-5580,
U.S.A. E-mail: rcringer@ilstu.edu
Steven A. Taylor Department of Marketing,
Campus Box 5590, Illinois State University,
Normal, IL 61790-5590, U.S.A.
E-mail: staylor@ilstu.edu
230 Kelly C. Strong et al.